It all started in 1983, when Toyota Motor Corp. Chairman Eiji Toyoda proposed a luxury vehicle line, later code-named "Circle F," for "flagship," to compete with Mercedes-Benz, BMW, Jaguar, Cadillac and Lincoln.
"The vision from Dr. Toyoda was: We're going to build the finest car we know how, and build a new benchmark. Lexus started as a flagship for Toyota," says Bob Carter, general manager of Toyota Division and a former Lexus general manager.
Then came another key decision: In 1987, Toyota decided to create Lexus Division rather than sell the new premium vehicles under the Toyota brand.
"We knew early on this had to be a completely separate customer experience," says Brian Smith, who worked on setting up the original dealer network for Lexus. He is now corporate manager of truck operations for Toyota Motor Sales.
These decisions seem obvious in hindsight. And the starting point for them was the sobering realization in the early 1980s that Toyota was about to lose many of its best customers.
Before the birth of Lexus, the U.S. market clearly demanded bigger and more prestigious products than anything Toyota offered in Japan, said Jim Press, another former Lexus general manager. Until his recent departure for Chrysler, Press was president of Toyota Motor North America Inc.
The postwar population explosion carried Toyota to success in the United States. Baby boomers on both coasts grew up associating Toyota with good quality for the money. But in the early 1980s, as they hit their peak earning years, the oldest baby boomers were defecting to European luxury brands.
Bryan Bergsteinsson, who was in charge of Lexus in the late 1990s, says baby boomers were "aging out" of their Camrys and Cressidas. Creating Lexus "was a defensive move, as in 'What are we going to give our owners?' And it had to be a new channel." He believes a flagship with Toyota badging would have sold a few thousand units but ultimately would have languished.
By the late 1980s, Toyota engineers had buried the image that "made in Japan" meant poor quality. "The demographics of baby boomers became an opportunity," Press said. "And the engineers wanted to prove to the world that they could do it."
But there were serious questions:
* Would wealthy consumers accept luxury products from a brand that lacked 50 or 100 years of snob appeal?
* Would customers balk at luxury vehicles that shared content under the skin with mass-market vehicles such as the Camry?
* Would customers patronize Toyota-brand dealers to buy the expensive products that the "Circle F" project would produce? Or should the U.S. company establish a new brand, with separate dealers?